Voters are fed up with central banks – the Swiss vote is just the start

Merryn Somerset Webb: On Sunday, the population of Switzerland will decide whether they want their central bank – the Swiss National Bank (SNB) – to abide by the following rules.

It would be prevented from selling any of its gold reserves. It would have to store all those gold reserves actually in Switzerland (at the moment only about 70% is there). And it would have to make sure that at least 20% of its assets are held in gold.

Right now less than 8% of the SNB’s assets are held in gold. So raising that to 20% would mean the SNB would have to either sell some of its foreign currency reserves (to increase the proportion of its reserves held on gold), or buy a large amount of gold in pretty short order.

It would be highly unlikely to go for the former option, because this would lead the Swiss franc to strengthen, and kick off a nasty deflationary crisis as a result. (One of the reasons that the percentage of the SNB’s assets held in gold has fallen as low as 8% is because Switzerland has been frantically printing francs and using them to buy other currencies in an effort to prevent the franc from rising.)

The upshot is that if Switzerland votes ‘yes’, the SNB will buy gold over a five-year period. The gold price is likely to jump as a result – by 18%, suggests the Bank of America…MORE (moneyweek.com)